Axsome Therapeutics, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; filed November 5, 2020. Axsome is a clinical-stage biopharmaceutical company developing CNS therapies. It had no approved products and generated no revenue.
Financial performance and position
- Revenue and margins: No revenue was reported. Profit margins are not meaningful for this pre-commercial company.
- Q3 results: Operating expenses were $21.1 million, versus $18.9 million in Q3 2019. Net loss was $22.9 million ($0.61 per share), compared with $19.1 million ($0.56 per share).
- Nine-month results: Operating expenses totaled $71.4 million, up from $42.8 million in 2019. Net loss was $73.7 million ($1.98 per share), versus $43.5 million ($1.29 per share).
- Expense drivers: Nine-month R&D expense increased to $52.9 million from $34.4 million, including a $10.2 million Pfizer license charge ($7.2 million non-cash). G&A rose to $18.5 million from $8.4 million, primarily due to higher stock compensation and commercial-function build-out. Q3 R&D declined year over year to $14.8 million from $15.8 million, largely as several trials completed; Q3 G&A increased to $6.3 million from $3.1 million.
- Cash and liquidity: Cash and cash equivalents were $202.4 million at September 30, 2020, down from $220.0 million at year-end 2019. Total current liabilities were $20.3 million; total assets were $203.6 million. Accumulated deficit was $249.6 million.
- Cash flow: Nine-month operating cash use was $57.9 million, versus $28.8 million in 2019. Investing cash use was $0.03 million. Financing provided $40.3 million, including $50.0 million of Hercules loan proceeds and $12.1 million net equity proceeds, offset principally by $21.7 million of debt repayment and $1.1 million of financing costs. Cash declined by $17.6 million.
- Debt: The September 2020 Hercules facility allows up to $225 million in multiple tranches; $50 million was funded at closing, with $10 million additionally available at the company’s option and later tranches subject to milestones, revenue conditions, or lender approval. Balance-sheet loan payable was $48.0 million, net of discount. The loan’s stated minimum annual rate was 9.15%, with monthly interest payments; principal amortization was scheduled to begin in 2023, subject to extensions. The company repaid its SVB loan and recorded a $1.25 million extinguishment loss.
Material changes and business developments
- Axsome reported positive pivotal-trial results for AXS-05 in MDD and Alzheimer’s disease agitation and for AXS-07 in migraine; it planned NDA submissions for both AXS-05 in MDD and AXS-07. It also reported FDA Breakthrough Therapy designations for AXS-05 in Alzheimer’s agitation and AXS-12 in narcolepsy.
- In January 2020, Axsome licensed Pfizer data and rights for AXS-12 and AXS-14, paying $3.0 million cash and issuing shares with a recorded fair value of $7.2 million. Pfizer may receive up to $323 million in milestones plus tiered royalties.
- Shares outstanding increased to 37.34 million from 36.93 million at December 31, 2019. The Hercules financing also included warrants for 15,541 shares at $80.43 per share.
Outlook, risks and unusual items
- Management expected continued substantial operating losses and stated that profitability may never be achieved. It estimated that cash plus committed Hercules capital could fund anticipated requirements into at least 2024, while cautioning that clinical-trial timing and spending assumptions could prove wrong. The full $225 million facility is not unconditional or fully funded.
- Principal risks include clinical or regulatory setbacks, additional trial or manufacturing requirements, inability to obtain financing, commercialization and reimbursement challenges, competition, intellectual-property disputes, and reliance on third-party manufacturers and CROs.
- COVID-19 had not significantly affected clinical-trial progress to date, according to the company, but its future operational, financial-market, and liquidity effects remained uncertain.
- The Hercules loan is secured by substantially all assets, including intellectual property, and contains restrictions and financial covenants that can become applicable as further amounts are drawn. Axsome reported compliance with financing covenants at September 30, 2020.
- Axsome disclosed no material pending legal proceedings. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress and timing of the planned AXS-05 and AXS-07 NDAs, and whether FDA requests additional evidence or studies.
- Actual cash burn and runway relative to management’s estimate, including which Hercules tranches are available and the conditions, interest costs, collateral, and covenants attached.
- Commercialization spending, financing needs, and potential dilution from future equity issuance, options, RSUs, and warrants.
- Pfizer milestone and royalty obligations and the implications of the Antecip licenses, including the disclosed relationship between Antecip and the CEO/chairman.